Progress Report Q2, 2011 And Early Stage Adventures In India

It has been a while since I did a progress report, the last one was in February of this year and I guess this is a good time to get back into the habit and also add a few points on the general experience of trying to find my way in the early-stage ecosystem in India.

A quick reading of the report card would find that I have given myself a good grade in making a living on my own terms outside the confines of a big company. In making the model scale, it is a sub-par grade and in making worthwhile inroads into the early-stage ecosystem in India I’ll have to fail myself. The net result of the report card is that I have been forced to review everything that I do and make an attempt to find a different way of going about it. The key takeaways from these are that you can’t realize the big Indian opportunity without big spends and that big spends without a product experience that does not have an actual resonance with the masses won’t go too well here. On the investor’s front, you can’t make things work purely on effort (where I have failed), nor can you make things work by throwing only money at it (where most traditional investors seem to fail).

The early-stage ecosystem requires the investors to contribute in at least one of the following means:

1. Effort: Help a new set-up with code, administering technical infrastructure, increase the effectiveness of marketing efforts through your personal network. There are no limits to what all you can do for an early-stage company, but there is certainly a limit in terms of how much you can do.

2. Capital: It is the lifeblood of all companies and there is simply nothing out there that you can replace it with. Everything else is an add-on on top the capital you can deploy as an investor. Advice and mentoring is easy to do, but putting your money where your mouth is, is much harder.

3. Connections: Shorter lead time is a major competitive advantage for any early-stage company. Even if you can effectively brandish the other supreme weapons of an early-stage company — pricing and execution advantage — extended lead times can kill even the best priced and executed products.

Since cash-flow is king, every deal that closes sooner, than later, makes it that much easier for an early-stage company to survive. If, as an investor, you have the connections in place, conversations on a sale can start at middle management or at the senior management level than start from the board number listed on the company website.

4. Clarity: A lot of early-stage success is related to being able to see the larger opportunity and being able so say “no” to a lot of things. Larger, more established companies have the ability to absorb leakages and distractions due to failed projects a lot better, but for an early-stage company these are blows that are hard to recover from. When you are strapped for cash and are living on a month-to-month basis it is so very tempting to do side projects that bring in much-needed revenue. The ability to see through clearly in such circumstances is invaluable.

For me, the attempt at getting into the early-stage ecosystem from an investment/incubation point of view was always going to be a great learning experience. The contribution on effort was the greatest, capital was second best. Connections worked out a bit better, but it deserves a fail. But the most spectacular failure was on clarity. Probably, the most damning of the failures is something that can’t be addressed in the points laid out above, I will attempt to address that now.

When you do start engaging with an early-stage set-up you should be very clear about what exactly is the scope of your engagement. You can be in it as an investor/mentor or you can be a part of it as one of the founders, as a part of the core team. The two choices mean two distinctly different roles and in mixing them up I made what is the most fundamental of mistakes. You can be a doctor or you can be a patient, but you can’t be a good doctor to yourself when you are the patient.

The immediate plan is to fix the problem with the lack of bifurcation and try to become an enabler instead of a stumbling block. The difference between the two can be missed quite easily. The longer term plan requires capital to be raised. It is hard to operate in the Indian market without money if we are looking for scale since a lot of the work often involves creating a market in the first place. This means that what the valley leans on a lot, network effects, is almost impossible to taken as a factor here. Excellent products can die a quiet death due to this factor. It is unfortunate, but it is very true too.

Effort is also not a major factor in India. There is no oversupply of ideas or products and money is often seen chasing good ideas that are hard to find. Effort deployed as a filtering mechanism works well only when there is oversupply, thus creating a premium on filtering-driven efficiency. We just don’t have that in India.

That said, raising capital either for a venture or to invest is much easier said than done and more importantly, it requires you to be well connected in the right places, which is not exactly my forte. But, there seems to be no other way forward than to give some form of this a shot. Hopefully, before the year ends, I should have something in place in this direction.